What Is Longevity Insurance?

You did it. You’ve set-up a solid retirement strategy that will have you covered for all the typical expenses that come with old age. 

But what if you live past 90? Or maybe even 100 years old?

What if your retirement nest egg is only enough to support you for a good 10 or 15 years after retirement? What if your funds dry up sooner than you’ve imagined?

In this article, we’ll take a look at an insurance product that aims to be the solution to that problem.

What is Longevity Insurance?

Longevity Insurance is a policy wherein you deposit a lump sum amount into the insurance company and in return, receive guaranteed payments once you reach a certain age.

As long as you’re alive, you will receive regular payments from the policy. This essentially ensures that you won’t run out of money no matter how long you live.

For example, let’s say a 50-year-old man purchases a longevity insurance policy today and pays $50,000 lump sum for it. For that money, the company guarantees an annual income of $40,000 once he reaches 85 years old. Assuming an inflation rate of 2.5%, he will receive the equivalent of $16,854.84 per year or $1,404.57 per month.

As you can see, inflation has a significant effect on how much you’ll actually receive in the future. And that’s why some of the insurance companies that offer longevity insurance give policyholders the option to get some kind of inflation protection feature.

Longevity Insurance versus Traditional Life Insurance

One of the first questions that pop up when people learn about longevity insurance is, “How does it compare to a traditional term or permanent life insurance?” 

In terms of how it works, it’s quite the opposite of your typical life insurance. With regular life insurance, you pay premiums on a regular basis in exchange for a death benefit (the insurance company will pay your beneficiaries when you die) in the future. 

With Longevity Insurance, you pay a lump sum upfront. In return, receive regular monthly payments once you hit a certain age. It’s like putting away the money you have now so that you’ll have a steady stream of income when you’re older.

The main drawback, if you will, is when you start to consider the potential growth of the lump sum money you’re “stashing away” for longevity insurance. Money that could otherwise be invested in bonds or stocks and give you a better return. 

With longevity insurance, the company is putting your money in safe and very low-risk investments in order to guarantee the income you’ll be receiving in the future. 

Reasons to Consider Longevity Insurance

Here are some of the best reasons why anyone (even people with traditional insurance policies already) consider getting Longevity Insurance.

Hedge Against Longevity Risk

People are living longer than before. Around the world, there are an estimated 900 million-plus adults over age 60. In 2030, that number is expected to rise to 1.4 billion and as much as 2.1 billion by 2050.

This correlates with the rise in annuity sales in the last few years in the US. In 2014 alone, total sales reached almost $230 billion.

In 2018, several insurance companies posted dramatic increases in the sales of their annuities products. Whichever way you look at it, more and more people are becoming aware of the realities of retirement and old age and take definitive steps in preparing for it.

And as some financial experts will tell, having money in popular investment products like stocks, bonds, insurance, does not necessarily answer the question of longevity risk, as no one can really tell up to how long a person will live. Investing in a product like Longevity Insurance makes sense in terms of guaranteeing a source of funds in the future that’s not tied up in your retirement nest egg, which can potentially dry up sooner than you expected.

Funds for Long Term Care

One of the biggest expenses that pop up as people get older is long term care. It typically concerns individuals who reach the age of 80 and beyond, and it’s quite expensive in general.

A semi-private nursing room can cost more than $100,000 a year, for example. A Genworth study conducted in 2018 revealed that the national median cost (annual) for home care is $48,048. 

What do these numbers tell us? One thing: Long term care costs more than most people think. And even if family members opt to volunteer and do everything they can to help, expenses for medication, therapy, and other similar tasks still require money, and that’s where Longevity Insurance can help with.

Money for taking care of physically-taxing chores or activities

As people grow older, our bodies naturally become weaker. Some tasks and activities become difficult to perform, so you’ll need to get some help in doing them.

What activities am I talking about? Stuff like cleaning the house and maintaining the lawn, for example.

Naturally, you’d need to hire help to accomplish these things. And the money you can get from longevity insurance is definitely going to help you pay for them. 

Guaranteed Income In Your Golden Years

One way you can think of Longevity insurance is as, “pre-buying your income”, for use later. While you still have the means, you can keep a certain portion of your money now and have them “work for you” later in life.

This is crucial in planning for your retirement. Especially now that reports say unless the Social Security System is amended, only about 77% of benefits are expected to be paid out by 2033. It is quite alarming, as what used to be one dependable means of income for retirees is now at risk. This potentially disrupting plans and making living in your golden years difficult. 

Worry-free Retirement Living

Who doesn’t want the peace of mind from money problems after retirement? As mentioned earlier, the biggest advantage that longevity insurance over other forms of retirement planning strategies is its guarantee. You’re essentially locking in your money for future use without the complexities and additional effort of investing your money “actively”. This is relatively riskier compared to annuity-types of investments.  

Pros and Cons of Longevity Insurance

While there are some obvious advantages to getting longevity insurance, there are also some downsides to owning one. Let’s take a look at the biggest factors highlighting its benefits and risks.


Hassle-free investing

Putting your money in stocks, bonds, mutual funds, etc., generally require that you actively maintain them. And even if it’s minimal, you’d still have to make the right moves to ensure the protection and growth of your investments.

What is Longevity Insurance?

Longevity insurance positions itself as a hands-free product that doesn’t require its owner to be actively involved in managing it. The insurance company will take care of that part. 

The fact that your money is invested in the market poses a real risk. With longevity insurance, your money is essentially “protected”. The company guarantees you’ll get paid no matter how the market performs.

To some people, this is a huge benefit as it will allow them more wiggle room in taking more risks in their traditional investments. They can do it since they can rest assured that they’ll get a certain amount during retirement regardless of market performance.


Money saved for retirement can dry up even if you budget it. Here’s the thing: even if you were able to save a lot for retirement, you might still end up not having enough. In concept, budgeting your money so that it will last for an X number of years is harder than receiving a fixed income indefinitely. This gives you a certain level of certainty that regardless of your financial condition later in life, you’ll always have money in your pocket. 

You don’t pay taxes on its growth

Money invested in longevity insurance isn’t taxed on its earnings. 

Simple and straightforward

Longevity insurance is easy to understand. It won’t have you scratching your head over various features and terms like those found in popular types of whole life insurance. No need to educate yourself about terms like cash value, sub-accounts, and others. You simply pay to apply for a policy, pay the agreed-upon lump sum amount, and you’re good to go; you don’t even have to worry about missing any payments since you’ve already completed it. 


The rate of return on your money is low

Perhaps the biggest argument against purchasing longevity insurance. And in a pure investment growth standpoint, this could be true. Assuming of course, that the investments you picked perform significantly better than the returns you’ll get from an annuity.

It’s important to note that while other traditional investments promise a better return on your money, it comes with a certain risk. Not to mention the fact that you have to do some work on your end to make sure your picks are not losing money. And to people who purchased longevity insurance, that’s one advantage that mainstream investments can never beat (guaranteed payoff).

You don’t get anything from it if you pass away before the designated age (unless you have an insurance rider)

Just like term life insurance, longevity insurance is a “use it or lose it” type of investment. It doesn’t have a cash value like permanent life insurance. However, most companies nowadays include an optional life insurance rider. This way your beneficiaries still get something in the event you pass away before your income benefit starts to kick in. Note that this typically lowers the actual compensation you’ll get. So make sure to discuss this feature with your insurer should you wish to add this rider. 

Lost flexibility

Forking over a significant amount of money and having it locked up for several years (or decades, depending on how early you purchased longevity insurance) means you won’t have access to it should you need it for emergency purposes. 

Longevity Insurance: Is It For You?

The main premise of longevity insurance is simple. Spend a chunk of money now so you can receive guaranteed payments in the future until you die. It’s a pretty compelling option, especially when you realize that you don’t really know how long you’ll live and how long your retirement money will last. 

Think about it—-when it comes to planning our expenses, we have all the variables available to come up with an accurate estimate. When budgeting your monthly expenses, for example, you know exactly how much you can spend, how many of a particular item you should buy, and how long your supplies will last. You have prior data to work with and the variables are easily identifiable, allowing you to budget your money accurately.

Wouldn’t it be awesome if retirement planning was just as easy? Imagine knowing all the key elements: how long you’ll live, how much you’ll need, how much money you can work with, etc. So you can come up with a solid financial strategy that will cover all your needs until you die, and then some.

The Bottom Line

Alas, it doesn’t work that way. Planning for the future, with all its uncertainties, makes retirement planning so much more complex and difficult. It’s the things that you can’t predict that prevents you from making an accurate approximation.

Longevity insurance aims to address this lack of certainty (or at least some portion of it) by taking the guesswork out of the equation. You simply pay a certain amount now based on what you want to receive in the future. It’s guaranteed money.

You don’t need to estimate how long you’ll live, decide which investments to choose, or “be covered” only for a certain number of years. Your insurance company will put money in your pockets on a regular basis for as long as you’ll live.  

The main trade-off, of course, is you might not end up using it (if you die before the age you can start claiming benefits). It’s worth noting though that some companies nowadays offer some form of death benefit rider to longevity insurance. This makes it more flexible and valuable to both policyholder and beneficiaries. 

Many people consider longevity insurance as a safety net that complements their overall retirement strategy. Looking at its benefits, it’s definitely something that you shouldn’t rule out when planning for retirement.

If you want to know more about longevity insurance or have questions regarding life insurance in general, feel free to contact us at 646-216-4199. We’ll even provide you with a free life insurance estimate.